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An exchange-traded fund, (ETF), is a collection of securities that are traded like one stock on stock exchanges. Some of the securities which can be included in an ETF are shares, debentures, commodities, or currencies. A portfolio is a collection of investments. In our case, this would be a collection of ETFs.
The purpose of this paper is to select two ETFs that are listed as the Swiss Traded ETFs, based on some criteria.
The following two Exchange-Traded Funds (ETFs) would be some of the best to invest in:
- UBS-ETF SMI
- XMTCH (CH) on SMI
Justification for UBS-ETF SMI
This fund has a relatively low management fee of 0.35%.
Osbon Capital Management (OCM) (n. d) has demonstrated that ETFs with lower management expenses are better. Most of the time, higher management expenses result in less satisfactory performance.
The fund is sufficiently mature. Research has shown that it is better to invest in funds that are at least three years old because there are many new funds in the market which are still experimenting and may not survive. It is, therefore, safer to invest in funds that have stood the test of time. Very new funds are likely to disappear when they fail to grow. Failed funds are often merged into larger funds. Learn All about ETFs (Anon. n. d).
This particular fund is more than six years old. It has been trading since 2003, so it is old enough to be trusted.
This fund has a relatively low tracking error of 0.11%. Picardo (n. d) states that the lower the tracking error, the better the ETF.
Given the unit price of 67.04, an investor would be able to build a portfolio considering the 100,000 CHF available for investment. An ETF with a very high unit price would make it very difficult to build a portfolio because 100,000 CHF would only buy a few units of such an ETF.
Justification for XMTCH (CH) on SMI
This fund also has a relatively low management fee of 0.35%. ETFs with lower management expenses are better. Most of the time, higher management expenses result in less satisfactory performance. 7 Scientific Mutual Fund and ETF Screening Criteria (Anon. n. d).
The fund is also sufficiently mature. The ETF Authority (n. d) has demonstrated that funds that are at least three years are more reliable because there are many new funds in the market which are still experimenting and may not survive. It is, therefore, safer to invest in funds that have stood the test of time. Very new funds are likely to disappear when they fail to grow. Failed funds are often merged into larger funds.
This particular fund is almost nine years old. It has been trading since 2001, and can therefore be trusted.
This fund has a very low tracking error of 0.04%. An ETF with a lower tracking error is better than one with a higher tracking error.
Given the unit price of 66.75, an investor would be able to build a portfolio considering the 100,000 CHF available for investment. An ETF with a very high unit price would make it very difficult to build a portfolio because 100,000 CHF would only buy a few units of such an ETF.
References List
Anon, (n. d). How to pick the best No-load Mutual funds and ETFs. 360-degree view of money. Web.
Anon, (n. d). Learn all about Exchange-Traded Funds. About.com. Web.
Anon, (2007). 7 Scientific Mutual Fund and ETF Screening Criteria. Web.
Osbon Capital Management. The fundamentals of ETF selection. [Online]. Osbon Capital Management. Web.
Picardo, E., (n. d) Five ways to find a winning ETF. Investopedia. [Online]. Web.
The ETF Authority (n. d). ETF Profit Selection System. The ETF Authority. Web.
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